Our experts answer: understanding the real estate market in Malta in 3 questions
If there is one common denominator for the current crisis, it is the uncertainty.
No one knows when the virus will be contained, when the cure will come, when the airport will reopen.
We believe that in uncertain times like these, the expertise is fundamental.
That’s why we asked two of the most dynamic and trustwhorty real estate agents in Kera, Stefan Consiglio from Malta Property Auctioneer and Kurt Lepre from Engel and Volkers, their views on the Maltese market.
Despite real estate business taking a hard hit, Stefan and Kurt lie down a number of very interesting solutions to contain the consequences of the crisis.
As a country, we need to understand the opportunities in this situation.
We need to focus on quality and reliability in the way we address people’s needs.
Proactivity is the key.
What has changed in the Maltese real estate market in the last weeks?
Stefan Consiglio: With the current situation, it is no surprise that the amount of transactions have declined substantially. People are less mobile and others are not willing to welcome people into their properties for inspection.
Rental prices have already started to drop because there is no movement of people. Even though we try to stay positive it will come as no surprise if sales prices take a hit. Keep in mind that one of the main valuation methods agents use in Malta is the return on investment from a rental perspective.
So if a property has the potential to rent for €1000 a month or 12k annually, they would work this amount over a 5% return to calculate the value of the property being 240,000. If suddenly the same property can only achieve a rental income of 750 monthly, then the same valuation method would mean that the sale price could also be 25% less.
Malta has never seen property prices come down substantially but this could very well be the first time. With airports closed the market is mainly made up of people who are and intend to remain in Malta.
While this is a dreadful situation for investors that might have overstretched themselves it could also be a blessing for those who need to get onto the property ladder or those looking to upgrade.
Kurt Lepre: Speaking of the rental market, there is no denying that demand in recent weeks has dropped significantly. This boils down to the recent government measures to shutdown flights meaning clients living overseas are unable to reach Malta.
Moreover, with the tourism industry being one of the hardest hit during this pandemic, we are noticing a big injection of holiday properties being now put up for long-lets.
As a result, we are witnessing the following:
- A large supply of vacant apartments that are up for rent
- Owners reduce rents for their current tenants.
- The time a property spends on the market has increased substantially.
- Consequently, clients looking to rent now have a big selection of properties from which to choose
The market has then responded in 2 contrasting ways:
- We are seeing price reductions from several owners
- On the other hand, some owners have not lowered their asking price as they are waiting to see how the situation will evolve in the next few months.
At Engel & Voelkers, we are noticing a substantial surge in clients currently living in Malta, who are now aware of these new market conditions.
These clients are looking to relocate in order to find better alternatives in terms of both price and quality with respect to their current residence.
When this situation is over, how do you think the real estate market will react and what will the consequences be?
SC: The main issue right now is that nobody can forecast when it will be over. Until there is international freedom of movement again the situation can only deteriorate.
1000’s of agents, that mostly work on a commission basis only, are currently without an income. Many will have to reconsider their career paths and again this may benefit others.
The positive side is that we may see mortgage rates fall even further, so if prices drop too then economic logic will have one think that demand can actually increase again.
At Malta Property Auctioneers we are preparing to have an increase in clients who wish to put their properties on auction to achieve a quicker sale at a fair price. The time for asking high prices hoping to find the one right buyer is over. Auctions offer the option of setting a reasonable reserve price and if there is a market out there willing to pay more, then higher bids will come in automatically.
KL: In my opinion this current situation is tied to what is happening globally, however it is temporary. For the time being the global economy has stalled and we shall see a recovery in the local real estate market once the global economy gets back on track. It is hard to predict when this will happen but once this pandemic is over, I believe, we will start seeing an upward trend in prices and gradually recover to previous levels.
What are the concrete problems and the potential solutions you see?
SC: The first problem I see is a higher unemployment rate. We have already seen thousands been made redundant in only a few weeks. If these people start to default on their home loans (banks cannot give eternal repayment breaks), the amount of repossessions could rise and more properties could remain empty or available on the market again.
This will also contribute to lower prices as more “bargains” become available. I use the term “bargains” because I know all agents have clients looking for that kind of property.
Another problem is that many departments such as law courts, land registry, planning authority, etc. are pretty much shut. They will all undoubtedly have backlogs when things get back to normal meaning there will further delays and possibly less buying confidence.
The type of solutions we need are those that aid and facilitate transactions. Government might be able to help by reducing stamp duties, sales tax, capital gains etc.
We need to focus again on the attractiveness of Malta in many ways – in terms of our natural and architectural surroundings, safety, medical standards and even fiscal. Schooling (or the lack of available places in schools) is another reason why many expats failed to choose Malta as their home ).
Right now we could be thinking of how to fix these issues and make our islands one of the best places to live again as soon as things settle.
As real estate agents, a solution to the short term is to collaborate together more, to match buyers and sellers together, to come up with new ideas, to stay on the same wavelength with regards to what values a property should be achieving in the current scenario and indeed to offer our clients some great opportunities.
Companies such as Kera can aid by helping us reach our target audience both locally and internationally.
KL: In our current situation, due to social distancing guidelines issued by the health authorities, some owners and clients are hesitant to meet up and set viewings for properties.
In my opinion the way forward is to adapt to this new environment with the help of new technology and as a result change the way we conduct business.
For instance at Engel & Voelkers Malta we have successfully launched our system of contactless viewings whereby our clients can view properties via video calls and no contact is involved. Also owners can list their properties on our website using an online listing form where they can forward all the relevant information relating to their apartment.
Kera has recently integrated Zoom to its platform which I think is a great way for us agents to connect with our customers without having to physically meet them.
Such innovations will help us conduct business in these difficult times.
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